What is the Business Community recommending to G20 Leaders on SME development?

Core members of the B20 China 2016 SME Development Taskforce / 15 July 2016

This coming September, the G20 Leaders will meet in Hangzhou, China, at a time of increasing volatility in global markets and political uncertainty. Across G20 economies and beyond, there is a pressing need to unlock growth, investment and jobs. Unlocking SMEs’s growth provides one of the best opportunities to achieve all of that.

In most countries, SMEs of all sizes contribute over 50% of GDP and three quarters of formal employment. They are important for social stability, innovation, equitable growth and poverty alleviation, and form the backbone of the working middle class.

However, SME development has historically been constrained by a lack of access to markets, critical resources such as finance and skills, and a complex set of regulations and standards.

In the last few years, G20 governments have made SME development a priority. This has been strongly encouraged by the Business 20 (B20), the premier dialogue platform of the business community with the G20 policy-makers representing the most important economies of the World.

The 2016 China B20 SME Development Taskforce (‘SME Taskforce’) builds on the work of the 2015 Turkey B20 . Established under the Chair of Mr Jack Ma, Executive Chairman of Alibaba Group, with Accenture as Knowledge Partner and the World SME Forum as Network Partner, over 100 senior executives from SME businesses, entrepreneurs and business associations contributed to the Taskforce.

After months of analysis, debates and deliberations, the SME Taskforce members identified a set of challenges which constitute major impediments to SME development in both developed and developing countries; these challenges require the attention of G20 Governments:

Inefficiencies in cross border trade that impede SMEs’ access to overseas markets. These inefficiencies include those due to the cost and complexity of operations, including weak use of, and access to cross border electronic trade

SMEs’ relative isolation from global value chains due to difficulties in accessing relevant information about markets and supply chain stakeholders, and the difficulties in meeting and obtaining certification for required international labor, environmental, social, product and quality standards

SMEs’ lack of access to timely and affordable finance due to the costs and risks for financial institutions to serve SMEs

Complexity of the business regulatory environment for SMEs and lack of specific incentives to SME development that make the cost of compliance for SMEs high, and limit full access to markets such as public procurement.

In response to these challenges, the B20 SME Taskforce is proposing four recommendations that the G20 should consider to unlock SME growth; these four recommendations are part of 20 overall recommendations by 2016 B20 taskforces to G20 Leaders in September – available in detail in the 2016 China B20 Policy Paper . The key recommendations to foster SME development are:

Endorse the concept of Electronic World Trade Platform (eWTP), a private sector-led and multi-stakeholder initiative, for public-private dialogue to incubate eTrade rules and foster a more effective and efficient policy and business environment for cross border electronic trade (eTrade) development

eWTP will promote public-private dialogue to improve the business environment and incubate future rules for cross border eTrade in some key areas, including simplification of regulations and standards, harmonization of taxation.

eWTP will cooperate with international organizations such as the World Trade Organization (WTO) in order to prioritize eTrade development needs and enhance eTrade articles in the WTO’s Trade Facilitation Agreement .

eWTP will aim to facilitate the development of eTrade and the digital economy through the development of eTrade infrastructure and adoption of best practices such as cross-border eTrade experiment zones to solve outstanding issues facing SMEs especially in developing countries.

Develop coordinated capacity building and certification programs to facilitate the inclusion of SMEs in Global Value Chains

G20 countries should set ambitious target for SMEs’ inclusion in Regional and Global Value Chains and provide regular reporting of performance.

G20 countries should cooperate with the World Bank Group (WBG) and Multilateral Development Banks (MDBs), the Organization for Economic Co-operation and Development, the International Trade Centre, the United Nations Industrial Development Organization and other relevant stakeholders such as the World SME Forum to better coordinate capacity building initiatives and priorities and step up funding for such programs.

Facilitate SMEs’ access to bank finance and alternative funding

G20 should request assessments from relevant international organizations, of the impact of the existing and upcoming financial regulations on SMEs lending and the efficiency of credit reporting, scoring and rating systems and report its findings to Basel Committee on Banking Supervision and Germany G20 2017.

G20 countries should facilitate the development of equity-based financing mechanisms for SMEs, such as support for business angels, seed capital, and venture capital, and encourage small-cap exchange.

G20 countries should facilitate the development of non-bank finance for SMEs, including FinTech, targeted trade and supply chain financing for SMEs. G20 should ask the WBG, MDBs, development finance institutions and others to facilitate the development of a framework for non-bank finance for SMEs in consultation with B20.

Improve SMEs regulatory environment through a reduction of compliance costs and a significant improvement of access to public procurement markets, especially through the digitalization of Government processes.

G20 countries should set measurable targets to simplify the regulatory process and alleviate SMEs’ compliance burden, including significantly reducing the cost and complexity of compliance, and developing e-government priorities to digitalize national and international regulatory processes, and provide regular reporting of performance.

G20 countries should promote SMEs’ participation in public procurement by simplifying the tender process and actively promoting increased market share of SMEs in public procurement.

As Co-chairs, Knowledge and Network Partners of the 2016 B20 China SME Development Taskforce, we urge the G20 to continue its support to SME growth by ensuring that G20 countries strengthen their focus on the SME agenda, now and in the coming years, starting with 2017 Germany G20.

We believe that these recommendations are practical and reasonable: they offer a concrete roadmap that G20 governments can implement to assist ongoing SME development and growth, in turn boosting much needed job creation and inclusive economic growth in both developing and developed economies.